Health Economics Program
Issue Brief
February 2013
Implementation of the Affordable Care Act in
Minnesota – Preliminary Projections of Reductions in
Uncompensated Care by 2016
Figure 1
Introduction
The system of health insurance coverage and
financing in Minnesota and the U.S. leaves some
individuals struggling to meet their share of health
care costs, resulting in health care providers bearing
significant costs related to uncompensated care. It
is the expectation of many health care observers1
that implementation of the Affordable Care Act
(ACA),2 through its provisions affecting health care
market regulation and the development of insurance
exchanges, will reduce the need for provider-based
uncompensated care. This issue brief estimates the
potential reduction in hospital uncompensated care
that may occur by 2016 in Minnesota.
Overview of Hospital Uncompensated
Care
As shown in Figure 1, the amount of uncompensated
care provided to hospital patients in Minnesota
community hospitals is substantial and has been
increasing over time. In 2011, hospital uncompensated
care amounted to $308 million, almost two and a half
times the amount ten years ago ($124 million). During
the recent economic downturn, uncompensated care
rose particularly steeply, growing at an average annual
rate of growth of 6 percent since 2007; uncompensated
care fell slightly in 2011.
Overall, uncompensated care appears to be about
evenly split between charity care (care provided for
free or at a discounted rate to low income patients
who are eligible for it), and bad debt (care for patients
with a responsibility to pay, who do not meet that
obligation). Charity care accounted for 49.3 percent
Uncompensated Care at Minnesota
Community Hospitals
Source: MDH Health Economics Program analysis of Minnesota hospital
annual reports
of uncompensated care in 2011, bad debt made up the
remaining 50.7 percent.
The majority of uncompensated care is incurred on behalf
of patients who lack insurance coverage and thereby an
independent source of funding for health care. Generally,
when uninsured patients in Minnesota present for
hospital care, they are evaluated for eligibility for free
care (fully charity care) or discounted care (partial charity
care) based on eligibility criteria set by the hospital.3
However, nearly half of uncompensated care (44 percent
or $135 million in 2011) is provided by hospitals on
behalf of insured patients. (See Figure 2). These likely
increasingly include patients who have chosen health
insurance products with affordable premiums but
Minnesota Department of Health
Preliminary Projections of Reduction in Uncompensated Care by 2016
that require substantial cost sharing for health care
services.4 Much of the uncompensated care costs for
insured patients (41 percent) is for charity care, with
the remainder accounted for by bad debt. This indicates
that a substantial number of patients with insurance
coverage who receive uncompensated care are of lower
incomes but not eligible for public programs (generally
a requirement for receiving charity care).
potential “bookends” to what actual uncompensated care
spending might be in future years.6 As shown in Table
1, given the upper and lower bound scenarios, hospital
uncompensated care without the ACA in 2016, the year
when the health insurance exchange is expected to have
reached mature enrollment, is projected to increase to
between $319 million and $411 million.
Table 1
Projected Uncompensated Care Cost
without ACA
Figure 2
Hospital Uncompensated Care by
Insurance Status
Source: Projections by MDH Health Economics Program
Implementation of the ACA through health care market
regulations,7 the requirement for individuals to carry
insurance coverage, and the establishment of health
insurance exchanges8 is predicted to reduce rates of
uninsurance and improve the mix of health insurance
benefits chosen by enrollees in health insurance products.9
The combined effect of these dynamics in Minnesota, as
shown in Figure 3, is predicted to reduce uncompensated
care spending by about 35 percent relative to the base
case of projected uncompensated care in the absence
of the ACA. This effect reflects potential reductions in
uncompensated care of between $115 million (at the
lower bound) and $145 million (at the upper bound).
Source: MDH Health Economics Program analysis of Minnesota hospital
annual reports
Projections of Hospital Uncompensated
Care with and without the ACA
Without implementation of the ACA, hospital-based
uncompensated care is likely to continue to grow because
of a number of factors including: (1) projected further
growth in health care costs; (2) population growth; (3)
likely growth in insurance products that shift a greater
share of costs to patients in the form of increased cost
sharing; and (4) factors related to ACA requirements
that incent hospitals to provide community benefits.5
Under this scenario, the number of uninsured is estimated
to decline by nearly 60 percent, from 499,000 to about
201,000 Minnesotans; it relies on assumptions made by
contractors to the state that include Medicaid expansion
to 138 percent as allowed under the ACA.10 In addition,
nearly 100,000 individuals in the individual market and
others with public program or small group coverage are
likely to see their benefits expand because of requirements
for essential benefits and standards for how these benefits
are packaged in certain cost (or actuarial value) levels. The
Given the inherent and substantial uncertainties related
to making economic and health care related projections,
uncompensated care spending with and without the
ACA is projected in ranges of spending that form
2
Preliminary Projections of Reduction in Uncompensated Care by 2016
Figure 4
drop in uncompensated care is smaller than the estimated
drop in the number of uninsured, because a significant
portion of uncompensated care is associated with care
provided to people with health insurance coverage.
In other words, even after gaining health insurance
coverage, some individuals will likely lack the ability to
pay their share of health care costs, or cost sharing.
Effect of ACA Implementation with a
Basic Health Plan on Minnesota
Hospital Uncompensated Care
Figure 3
Effect of ACA Implementation without a
Basic Health Plan on Minnesota
Hospital Uncompensated Care
Source: Projections by MDH Health Economics Program
Conclusion
In summary, implementation of the ACA in Minnesota
with establishment of a health insurance exchange and
a BHP with expanded health benefits could result in
reduction of projected hospital uncompensated by
between $134 million and $168 million by 2016. This
estimate is likely a conservative, low estimate, because it
only considers hospital uncompensated care. National
research shows that community-based providers and
physicians deliver as much as 39 percent of total
uncompensated care to patients.12,13 However, should
the state decide not to expand Medicaid coverage up to
138 percent of poverty, projected uncompensated care
cost reductions would be lower than estimated in this
issue brief.
Source: Projections by MDH Health Economics Program
One of the key decisions that Minnesota policymakers
will be making in the coming months relates to whether
or not Minnesota will adopt a Basic Health Plan (BHP).
A BHP under federal health reform is an optional
program under which states can use a certain amount
of federal funding to subsidize coverage for individuals
with incomes between 138 to 200 percent of poverty (as
measured by the federal poverty guideline). Economic
simulations of the effects of implementing a BHP
with expanded (wrap-around) coverage in Minnesota
indicate that the number of uninsured in Minnesota
would further decline with a BHP (to approximately
160,000 individuals) and that people with incomes
between 138 percent and 200 percent of poverty
would obtain health insurance benefits with lower cost
sharing requirements.11 Again, taking both effects into
consideration, Minnesota is projected to see a reduction
in hospital uncompensated care with implementation of
a BHP by about 40 percent, reducing uncompensated
care by an additional $19 million (at the lower bound)
to $23 million (at the upper bound).
Limitations
As with all projections, this analysis is subject
to significant uncertainties related to trends in
demographics, economic performance and policy
developments. Further, this analysis relies on high-level,
aggregated data from Minnesota health care providers.
A more refined analysis would draw on more complete
and disaggregated, data and detailed results from
actuarial and economic simulations that could identify
more precisely the relationship between uncompensated
care and type of coverage in a health market with an
insurance exchange.
3
Preliminary Projections of Reduction in Uncompensated Care by 2016
Endnotes
1
See for instance: Holahan J. and Garrett B, “The Cost of
Uncompensated Care with and without Health Reform: Timely Analysis
of Immediate Health Policy Issues,” Urban Institute, March 2012.
2
The Patient protection and Affordable Care Act (Pub.L. No. 111149, 124.Stat 119) amended by the Health Care Education and
Reconciliation Act, (Pub.L. No. 111-152, 124.Stat 1029 is referred to in
this issue brief as the Affordable Care Act.
3
In addition, Minnesota hospitals, under an agreement with the
Minnesota Attorney General, provide a discount to uninsured patients
with incomes below $125,000 and who qualify for charity care that is
equal to discounts offered to health insurance plans.
4
MDH research has shown that the number of individuals in the health
insurance market with substantial cost sharing has increased notably
over time. For instance, the rate of individual market enrollees who
purchased health insurance products that have deductibles of greater
than $3,000, increased from 14.6 percent in 2002 to 73 percent in 2011.
auto medical insurance
5
Section 9007 of the ACA established two requirements related
to community benefit (of which free and discounted care is one
component) for hospitals that seek to maintain their non-profit taxexempt status: (1) hospital must demonstrate that they understand
the community health needs among their patient base and seek ways
to address them; and (2) hospitals must implement practices and
policies related to financial assistance, billing and collections that
protect consumers. See for example: Folkemer D.C., Spicer L.A. et
al., “Hospital Community Benefit After the ACA: The Emerging Federal
Framework,” The Hilltop Institute, January 2011.
6
Upper bound projections assume uncompensated care cost growth
consistent with the average annual rate of growth between 2007 and
2011; lower bound estimates assume uncompensated care spending
per insured and uninsured Minnesotan in 2011 (about $58 and $355,
respectively) would hold moving forward.
7
Includes provisions such as the removal of annual limits on benefits
paid by insurance coverage, establishment of minimum amounts of
premiums spent on health care claims, broadening coverage of young
adults as dependents, and removal of health factors in determining
insurance premiums.
The Health Economics Program conducts research and
applied policy analysis to monitor changes in the health care
marketplace; to understand factors influencing health care
cost, quality and access; and to provide technical assistance
in the development of state health care policy.
8
Includes provisions under which certain eligible lower income
individuals will receive financial support for the purchase of insurance
coverage and payment of cost sharing obligations.
9
Gruber J. and Gorman B., “Analysis of Implementation of the
Affordable Care Act, Health Insurance Exchange, and Basic Health Plan
on Minnesota,” Report to the Department of Minnesota Management
and Budget, forthcoming.
For more information, contact the Health Economics Program at
(651) 201-3550. This issue brief, as well as other Health Economics
Program publications, can be found on our website at http://www.
health.state.mn.us/healtheconomics.
10
The Minnesota legislature is currently considering the choice to
further expand Medicaid eligibility in Minnesota.
11
See note number 8.
12
Hadley J., Holahan J, and T. Caughlin, et al., “Covering the Uninsured
in 2008: Current Costs, Sources of Payment, and Incremental Costs,”
Health Affairs, 27, no.5 (2008)
Minnesota Department of Health
Health Economics Program
85 East Seventh Place, PO Box 64882
St. Paul, MN 55164-0882
(651) 201-3550
13
Data from community-based providers and office-based physicians is
not available in Minnesota to refine these estimates.
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